Graduate Microeconomics II
Albert Banal-Estanol
Office: SSC 4056
Phone: (519) 661-2111 ext. 85363
Spring 2005
Lectures: M & W 11:30am–1pm
Office Hours: M & W 2-3pm
Teaching Assistant:
Office hours:
This is an advanced course in microeconomic theory. It is divided into three parts: a
small, first part that analyses consumer decision-making under uncertainty; a large,
second part that covers game theory and its applications; and a third part that includes
topics in information economics.
There will be ten (weekly) assignments with the following due dates: January 19 and
26; February 2 and 9; March 2, 9, 16, 23 and 30; April 6. The average mark on your
nine best assignments will make up 20% of your mark. There will be a midterm on
February 16 (date to be confirmed), and your mark on it will constitute 30% of your
course mark. Your mark on the Final Exam, which is yet to be scheduled, will make
up the remaining 50% of your mark for the course.
The Dean of Graduate Studies requires the addition of the following statements.
“Students must write their essays and assignments in their own words. Whenever
students take an idea, or a passage of text from another author, they must
acknowledge their debt both by using quotation marks where appropriate and by
proper referencing such as footnotes or citations. Plagiarism is a major academic
offence (see Scholastic Offence Policy in the Western Academic Calendar).”
“The University of Western Ontario uses software for plagiarism checking. Students
may be required to submit their written work in electronic form for plagiarism
Main Texts:
Mas-Colell, A., A. Whinston and J. Green (1995): “Microeconomic Theory”, Oxford
(henceforth MWG).
Fudenberg, D. and J. Tirole (1991), “Game Theory”, MIT (FT).
Osborne, M. and A. Rubinstein, “A course in Game Theory”, MIT (OR).
Jehle, G and P. Reny, “Advanced Microeconomic Theory”, Addison Wesley (PR).
Additional Texts:
X. Vives, “Oligopoly Pricing: Old Ideas and New Tools”, MIT.
Macho-Stadler, I. and D. Perez-Castrillo, “An Introduction to the Economics of
Information: Incentives and Contracts”, Oxford.
M. Osborne, “An introduction to Game Theory”, Oxford.
Course Outline
1. Choice under uncertainty.
MWG: Chapter 6. PR: Chapter 2.4.
2. Non-cooperative Game Theory:
a. Introduction.
Monopoly, Stackelberg and oligopoly. More examples.
b. Elements.
Extensive and strategic form representations. Mixed strategies.
MWG: Chapter 7. FT: Chapter 1.1.1.
c. Static games with complete information.
Dominant and dominated strategies. Rationalizable strategies. Nash
equilibrium. Application: static oligopoly.
MWG: Chapters 8.A–8.D. FT: Chapters 1 and 2. OR: Chapters 2.22.5, 3.1-3.2 and 4.
d. Dynamic games with complete information.
i. Subgame perfect equilibrium. Application: bargaining.
ii. Repeated games. Folk Theorem. Application: collusion.
MWG: Chapter 9.B. FT: Chapters 3,4 and 5. OR: Chapters 6, 7 and
e. Static games with incomplete information.
Bayesian Nash Equilibrium. Application: auctions.
MWG: Chapter 8.E. FT: Chapters 6 and 7. OR: Chapter 2.6.
f. Dynamic games with incomplete information.
Perfect Bayesian equilibrium. Sequential equilibrium. Application:
cheap talk.
MWG: Chapter 9.C. FT: Chapters 8.1-8.3. OR: Chapter 12.
3. Information Economics:
a. Adverse Selection and signalling.
PR: Chapter 8.1. MWG: Chapter 13.B-13.C.
b. Moral Hazard.
PR: Chapter 8.1. MWG: Chapter 14.B.